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Facts
The Revenue filed an appeal against the order of the CIT(A) which allowed the assessee's appeal and deleted the penalty levied by the AO. The penalty of Rs. 1,87,87,550/- was imposed based on a quantum addition of Rs. 5,52,73,757/- made under section 143(3) read with 148, which had previously been deleted by the ITAT. The department is considering appealing the ITAT's order to the High Court.
Held
The Tribunal affirmed the CIT(A)'s decision, holding that once the underlying quantum addition, which serves as the foundation for the penalty, is deleted, the penalty itself cannot be sustained. The ld. DR conceded this point during the hearing, acknowledging that the penalty falls when its basis is removed.
Key Issues
Whether a penalty levied under Section 271(1)(c) of the Income Tax Act is sustainable when the foundational quantum addition has been deleted by an appellate authority.
Sections Cited
143(3), 148, 271(1)(c)
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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI MAHAVIR SINGH, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. CIT(A) - 3, pertaining to A.Y. 2010-11.
The Revenue has raised the following grounds of appeal:
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of assessee without considering the facts and merit of this case.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deciding that penalty levied by the AO is not sustainable on the basis of order of ITAT dated 23.01.2024 where in the Hon'ble ITAT deleted the addition amounting to Rs. 5.52.73.757- made by AO vide order u/s 143(3) r.w.s. 148 of the Act, and the Ld. CIT(A) has not considered the impact of quantum and nature of addition and consequential amount of penalty (Rs. 1,87,87,550/-) thereon where as department is recommending further appeal before the Hon'ble High Court against order of the Hon'ble ITAT.
3. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law.
That the grounds of appeal are without prejudice to each other.
5. The appellant craves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
The representatives of both the sides were heard at length, the case records carefully perused and we have duly considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules.
4. At the very outset, the ld. counsel for the assessee submitted that the quantum addition made in the assessment of the A.Y under consideration has been deleted by the ld. CIT(A), therefore, there remains no basis for levy of penalty u/s 271(1)(c) of the Act.
The ld. DR fairly conceded to this.
We have given thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel for the assessee. We find that the ld. CIT(A) has deleted the additions made in the assessment. Sublato Fundamento Cadit Opus, meaning thereby, that in case the foundation is removed, the super structure falls. Since the quantum addition has been deleted and the foundation has been removed, the super structure i.e. penalty must fall.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 28.11.2024.